Keep on Trucking

As the fortunes of big companies sink like stones, one midsize firm is a rising star. Saladino’s Inc., a 65-year-old food distributor based in Fresno, California, has had revenue growth of 230 % in the past three years – increasing from about U. S.$100 million six years ago to almost U.S.$400 million today.

The success of the familyowned business, says CIO Craig Urrizola, can be attributed to its superior customer service and, in part, to a revamped IT strategy, with SAP software in place to boost business efficiency. “SAP software allows us to be more cost-effective and efficient – it helps us provide better customer service,” Urrizola says. Saladino’s went live in May 2008 with SAP Business All-in-One for its financial processes. This spring it will deploy customer relationship management software and the SAP Paybacks and Chargebacks application by Vistex. Later, it will deploy software for warehouse management.

The price was right

In early 2007, Saladino’s launched a new distribution center near Los Angeles. That is when it became clear that its existing software was not up to par. Saladino’s staff had to do logistics and accounting tasks by hand, which was costly and inefficient. Not only was the company’s legacy system inflexible and incapable of handling key processes, but it also had been customized so much that maintenance and licensing were difficult and expensive. The company needed technology that could help streamline its operations
and support its stellar growth.

Urrizola knew he needed an integrated enterprise resource planning (ERP) system but initially was reluctant to consider SAP software. He assumed it was too costly and complex for a company the size of Saladino’s. And an early, exorbitant proposal from a consultant almost convinced him to remove SAP from his radar. It took a meeting with an SAP executive, a trip to the SAPPHIRE 2007 conference, and a spot-on proposal from Fujitsu Consulting to persuade him that SAP was the right choice.

Deployment began in March 2008. The company had financial processes up and running in just eight weeks. Today, Saladino’s SAP rollout continues as more core business processes are SAP-enabled.

Rolling out the benefits

Craig Urrizola, CIO at Saladino's

Saladino’s has already seen great results. Ist accounting, for instance, is more efficient. In the past, the company used a nonintegrated accounts payable system that did not operate in real time. It was subject to inefficiencies because it did not use purchase orders. Now the company uses purchase orders and tracks accounts payable in the SAP software. The data is accurate and in real time and the general ledger is accurate and up-to-date.

The company also spends less money on external accountants. Urrizola expects even more benefits after the next SAP rollout in March. New automated sales and service processes will give the company’s customers a single portal to access account balances, pay invoices, submit return requests, and place orders online. In addition to raising customer satisfaction, these processes will reduce time-consuming and costly paperwork for both the customer and Saladino’s.

Saladino’s will also have in place new material resource planning capability for purchasing and new availability-to-promise capability for order entry. These processes will enable the company to plan inventory more accurately to match customer needs. This is a crucial capability because if Saladino’s makes a delivery mistake, it guarantees redelivery of the correct order within 24 hours. With accurate purchasing and order data, the company will make fewer mistakes and spend less money to correct them with expedited shipping.

Chargebacks generate big ROI

But the biggest business impact and best return on investment may come when Saladino’s deploys SAP Paybacks and Chargebacks. This application could benefit the company by some U.S.$ 30, 000 per month, Urrizola says, because it’s the norm for customers to negotiate a specific price with vendors in the food distribution industry. The distributor, Saladino’s, then structures its sales price to adhere to that contracted price. If its actual sales price is lower, Saladino is entitled to a chargeback from the vendor.

For example, a sandwich shop contracts to buy bread from Saladino’s for 10 dollars per case, but Saladino’s ends up having to pay 12 dollars per case for it. Saladino’s gets a chargeback from the vendor to make up for its loss of 2 dollars per case. With nonintegrated business processes that are not linked by an ERP system, Saladino’s faces two costly problems. First, lost or incorrect data means it could miss out on as much as 18% of the chargebacks it is owed. And second, it can run into a cash flow crunch because the chargebacks take too long.

Saladino’s chargebacks usually take 30 to 90 days to be processed and paid. With the SAP software, Urrizola expects that number to drop to 14 to 21 days, with a 10% increase in chargebacks paid overall. Thus, he estimates U. S.$30,000 in extra monthly revenue. “This alone will pay for our SAP deployment within three years,” he says. While he says he’s thrilled with SAP, Urrizola points out that Fujitsu Consulting also deserves credit.

“SAP may offer the best software on the market, but without a partner that can install it in a cost-effective fashion, it would be a bust,” he says. When asked if he still thinks SAP software is too complex or costly for midsize companies, he says, “No way. I know from my own experience that it is a good investment, even in a down economy.”